On Site Power Generation
16 June 2008
Given the current push for a 60% reduction in carbon emissions
by 2050 and the need for all new buildings to become zero carbon in
the foreseeable future, there has been a lot of debate as to how to
achieve this. A major aspect of the debate has been whether it is
appropriate for local authorities to insist that a fixed percentage
of the energy needs of a new development must be generated by on
site renewable energy, rather than simply taking electricity from a
supplier in the usual way. For intensive energy users this can pose
a real problem, partly if the site is not suitable for some of the
more common renewable energy technologies (such as wind and solar),
and partly because of the sheer amount of energy they may have to
generate.
The Merton Rule and PPS1
Merton Borough Council started the policy of requiring new
developments to provide 20% of its energy needs from on site
renewable energy and 140 Councils have now followed suit. There was
concern, however, that some sites simply were not suitable for
renewable energy generation and on 13 December 2007 the Government
published a national planning policy statement (PPS1) which said
that renewable energy quotas for new development must be flexible
and only used where they are viable. PPS1 was supportive of off
site provision, for example, through community energy schemes.
The Planning and Energy Bill
In the meantime, a private members bill called the Planning and
Energy Bill was introduced into Parliament in December 2007 to
support the Merton Rule by formally giving local authorities the
power to require 10% on site renewable energy provision for new
development. It was scheduled for its second reading in the House
of Lords on 13 June 2008.
Citiworks (Energy) [2008] EUECJ C-439/06
A new spanner has been thrown into the works by this German case
which came before the European Court of Justice of the European
Communities on 22 May 2008. EU Directive 2003/54
establishes common rules for the generation, transmission,
distribution and supply of electricity. Recital 4 to the Directive
states that all consumers should be free to chose their suppliers
and all suppliers able to freely deliver to their customers.
Recital 7 states that "non-discriminatory access to the network of
the transmission or distribution system operator is of paramount
importance".
The EU Directive was transposed into German law by the EnWG. The
EnWG states that operators of energy supply systems shall grant
anyone access to its system without discrimination. However,
the EnWG contained provisions that the rules under the EnWG would
not apply to a site network. There were various ways in which site
network status could be claimed, and one was that the energy supply
system is located on a geographically connected zone and serves
predominantly its own supply purposes and those of connected
undertakings.
The case involves Leipzig airport. FLH operates the airport and
maintains an energy supply system to meet its own electricity
requirements and those of 93 other undertakings located on the
airport site. FLH claimed that as the electricity supply system was
a site network, it did not have to grant access to third parties
such as Citiworks to its supply system. The regulatory authority
agreed, but that decision was challenged by Citiworks who claimed
that EnWG was incompatible with Directive 2003/54.
The Court found that the Directive does not permit a national
law which allows certain operators of energy supply systems to be
exempt from having to allow open access to their energy supply
system. The Directive itself contains certain exemptions but none
of them applied in this case.
Conclusion
This case would suggest that if you operate a system that
transmits electricity, unless you can fall within the limited
exceptions set out in the Directive, you must allow third parties
access to your energy supply system. This does not sit at all well
alongside the proposed UK obligation for certain developments to
have to generate and use their own energy as in fact under the
Directive they should have a free choice of where they obtain their
energy from and who they supply the energy that they generate
to.
In the UK, there is an exemption from the electricity licensing
rules (Electricity (Class Exemptions from the requirement for a
licence) Order 2001) for a generator that supplies its entire
generation output to a single consumer occupying premises located
on the same site as the generating station. In addition, consumers
normally have the right to change suppliers on 28 days notice, but
this does not apply where the supplier is exempt from the need to
hold a licence. It remains to be seen whether these rules in the
UK, which effectively create a monopoly where power is generated on
site, will remain valid given this latest ECJ judgement. If they
prove to be invalid, this may spell the end of the Merton Rule.
OFGEM and BERR are currently consulting on reforming licensing
regulations for decentralised energy systems in the UK to create
more flexibility in the market. However, they were waiting
for the outcome of the Citiworks case before reaching any
conclusions.